Standing Committee B

[Mr. James Cran in the Chair]

Pensions Bill

Clause 220 - Persons entitled to more than

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: It is a pleasure to see you in the Chair, Mr. Cran. I was hoping that one of the Ministers would tell the Committee a bit more about what the clause attempts to do. I am sure that they are proud of it; perhaps they would talk us through it.

Malcolm Wicks: I, too, welcome you to the Chair, Mr. Cran, and back to the country after your visit to Turkey. You were probably not thinking about category B pensions on the return flight, but the clause is concerned with that matter.
 The purpose of the clause is straightforward. It ensures that if a person is entitled to more than one category B pension, he or she is able to choose between them. For the enlightenment of Committee members who are not category B pension anoraks, a pension is payable by virtue of the spouse's qualifying years of earnings. Those who can get a category B pension are married women, widows and widowers. The clause primarily affects widows already entitled to a category B pension who remarry. People are already able to choose if they are entitled to two or more retirement pensions of different categories. The ability to choose which category B pension existed in law until April 1992. The ability to make that choice was then inadvertently omitted when contributory benefits legislation was consolidated into the Social Security Contributions and Benefits Act 1992. That was not our mistake. 
 When we discovered the omission in 2001—[Interruption.]—shortly after we came to power, and took steps to correct it. We did not want people to lose out through a mistake not of their own making, so we provided for the most beneficial category B pension to be paid on an extra-statutory basis until such time as we could amend the legislation. That time is now. 
 The clause restores the choice that existed in legislation before April 1992. It is important to give pensioners choice and we must put the payments back on a statutory footing. That will provide reassurance to recipients of the payments and reassure taxpayers that their money is being paid legally. In practice, no one has lost out because of the error in the 1992 Act, and no one will lose out as a result of our decision to restore this piece of legislation.

Nigel Waterson: I am glad that I raised the matter. It is an object lesson to the Committee on how things can
 inadvertently go wrong. That is why Opposition scrutiny of the sort that we offer is so important. From the Minister's chronology, it sounds as though the result was a score draw: a Conservative Government dropped the ball, but it took the incoming Labour Government an almost equal period to notice that it had been dropped.

Malcolm Wicks: A Conservative Government dropped it; we picked it up.

Nigel Waterson: I have not played rugby for a few years, as is apparent from a glance at my shape, but I think that taking four years to pick up a ball that has been dropped is about as bad as dropping it in the first place.
 I am pleased that no one has lost out, and I am sure that those who have continued to receive their money are blissfully unaware that they have been doing so illegally and that the Government could have claimed it back from them at any time. It is right that we should support the clause now that we know exactly what it is for. 
 Question put and agreed to. 
 Clause 220 ordered to stand part of the Bill.

Clause 221 - Deferral of retirement pensions and

Steve Webb: I beg to move amendment No. 8, in
clause 221, page 147, line 26, at end add— 
 '(5) At the end of section 15 (3) of the State Pension Credit Act 2002, insert ''but capital shall be deemed to exclude lump sums payable under Schedule 5 or 5A to the Social Security Contributions and Benefits Act 1992 (c.4)''.'.
 It is a pleasure to serve under your chairmanship, Mr. Cran. It was thought that this could be a Conservative amendment, which would not be inappropriate because some unselected Conservative amendments are in the same spirit. All Opposition Committee members want certain matters to be clarified. 
 The amendment refers back to the aforementioned 1992 Act, where an earlier Government dropped the ball, because that is what is being amended. The clause amends the application of schedule 5 and 5A to the 1992 Act. The amendment would change a reference to the 1992 Act contained in the State Pension Credit Act 2002. As amendment No. 7 shows, we had one go at that and got it wrong. We may well have got it wrong in this amendment as well. 
 However, there is an issue of substance to consider: the very narrow issue of how the lump sum allowed under clause 221 is to be treated in the rest of the benefits system. After discussing that, we should have a separate and substantive debate on the clause itself because it involves a much wider range of issues. At the moment, however, I shall restrict my comments to the narrow terms of the amendment. 
 The Bill will create a new thing: a state pension lump sum, which would be created by deferring a state pension and later, instead of drawing a higher state pension, converting it into a lump sum. The 
 Government have presented that—inaccurately, in my view—as a great new option for the poor. They have said that only the rich used to have lump sums and now the poor can have them, which is nonsense, but more of that later. 
 Somebody aged 65 will want to know whether it is a good idea to take the lump sum. Governments always pay lip service to simplifying pensions, but this is yet another complexity and involves another tricky decision. People spend most of their working lives making difficult decisions about pensions and just when they think it is safe to come out from under the eiderdown, here comes another one: a person reaches pension age and, instead of simply taking or deferring their pension, they have the further option of taking the lump sum. They will want to know what effect deferring the pension for five years and drawing a lump sum of £25,000, or whatever, will have on their state pension credit entitlement. 
 Despite the woeful take-up of the state pension credit so far, we are moving to a world in which between half and two thirds of all pensioners will be within the scope of means-testing. Therefore this is not a peripheral, nit-picking, marginal issue, but is absolutely central, because the majority of pensioners deciding whether to take a lump sum instead of their weekly pension will be within the scope of the means test. 
 If pensioners have a lump sum of £25,000, will the Government say, ''We will ignore the first £6,000, and impute you a socking great income from the rest, and you will not get pension credits''? The person would have to make a mental calculation: ''I will do without my pension for five years, I will take a lump sum, and, although I will enjoy that, I will deprive myself of quite substantial amounts of pension credit.'' If that issue is not made clear—it is not clear in the Bill as it stands—people will not know what to do. They may be well advised not to take advantage of the provision because it might only deprive them of future means-tested benefits. 
 We have probed that issue before. When I asked Ministers about the matter, they were a little vague. I think that they were not entirely sure themselves. So we visited the departmental website. I will not read the full URL of the relevant bit, just part of the fact sheet entitled ''State Pension deferral—taking up your State Pension later''. Page 3—it is in a question-and-answer format—discusses the impact of the lump sum on the pension credit. It states: 
''we want to help people plan for their retirement in the most straightforward way,''— 
ho, ho— 
''so that they can get the best deal for themselves. Most people who are entitled to Pension Credit will not have to pay tax on the lump sum'', 
 and we will talk about tax in a separate debate. This is the key sentence: 
 ''We also want to make sure that the lump sum is ignored''—
 that is the spirit of the amendment— 
''when most people claim Pension Credit, Housing Benefit and Council Tax Benefit''.
 Which people? When, how and why, and where is that stated in the Bill? 
 The amendment tries get behind the Government's thinking. They say ''most people''. So some people, in contravention of what our amendment would do, will have the lump sum taken into account. Will people at the age of 65 know five years down the line whether they will be among the ''most people'' or the remainder? Will that depend on their circumstances at 70, or will they know at 65 for sure? Will they have to guess—to speculate? 
 So something presented as offering whole new vistas for pensioners turns into a rather complex and convoluted choice, on which people have incomplete information and the Bill is of little use. I hope that we will get a clear answer from the Minister about who are ''most people'', who are the rest, whether people will know in advance which category they will fit into, and how the Government plan to treat lump sums for the purposes of the pension credit and other means-tested benefits.

Nigel Waterson: Unusually, I should like to row in behind the amendment, but I shall add some thoughts of my own.
 Let me put down a marker immediately, as the hon. Gentleman did: there is a much broader discussion to be had in the stand part debate. We are talking about a particularly narrow point and, as you will have seen, Mr. Cran, we Conservatives tabled amendments on it ourselves. However, we did so with such a monumental lack of skill that they were not selected. We were basically trying to achieve the objective that the hon. Gentleman seeks to achieve in the amendment. 
 We started with two concerns about the lump sum. The first related to the tax situation, and that issue seems to have been clarified, although the Minister may wish to touch on the subject again. The second related to how the lump sum is to be treated for the purpose of means-tested benefits. As the hon. Member for Northavon (Mr. Webb) said, that is an important issue. Only yesterday, we saw the latest figures for the take-up of pension credit. Although the numbers have gone up—with £47 million having been spent on advertising, why would they not have done?—they are still a long way short of what they could and should be. Not many more than half of those entitled are actually claiming. It is a Treasury assumption, or target, that 1.4 million pensioners will never get round to claiming it.

David Cairns: That is not true.

Nigel Waterson: But that number is set out in the Government's own figures. Indeed, the figure was described not as a planning assumption but as a target by the Under-Secretary of State for Work and Pensions, the hon. Member for Liverpool, Garston (Maria Eagle), in a debate that I attended in Westminster Hall. She did not try to withdraw that term, and has not sought to withdraw it since, despite having the opportunity to do so.
 We are talking about a benefit that is both complex and subject to means-testing, and we all meet people in our constituencies who are put off for either or both of those reasons. I am the first to encourage any of my constituents who might be entitled to means-tested benefits to apply for them. The most chronic problem is the take-up of council tax benefit. The Under-Secretary of State for Work and Pensions, the hon. Member for Gravesham (Mr. Pond), is launching a programme to try to increase take-up, and that is good, but it is in the nature of means-tested benefits that we have to spend money on boosting take-up. We know that there is nearly—or so near as to make no difference—100 per cent. take-up of the state retirement pension. 
 Another issue is how the lump sum is to be treated. We know that a major problem facing pensioners and troubling the pensions industry is the question of how much people have to save for their retirement before they can be sure that they will not be subject to means-tested benefits. Let us imagine two sets of neighbours. One set has additional foreign holidays and perhaps buys a boat, while the other puts money aside for a pension. They may ultimately end up in much the same position, thanks to the means-tested system. 
 Some time ago, Conservative Members came up with the figure, given to us by actuaries, of £180,000 for the amount that a working couple would have to put aside in their working lives to be sure of not being subject to means-testing. The Government have been good enough to rubbish that figure on every opportunity that I have given them, but they are yet to come up with their own figure. They may not do so in response to my successive invitations, but sooner or later they will have to give a figure to the rest of the world and the industry, which is worried about issues such as mis-selling. 
 I concur with what the hon. Member for Northavon says. It is important that we have some clarity about how the lump sum is to be treated for pension credit purposes or in relation to means-testing generally. Our preference is for the lump sum to be put aside and not taken into account, but if it is to be taken into account, that needs to be made very clear; otherwise, what seems to be a headline issue, and a good thing for pensioners, particularly those who are poorer, may turn out not to be such a good thing after all.

Malcolm Wicks: I agree with the hon. Member for Northavon that there is a substantive point about the interaction between the lump sum and pension credit. It might help if I talk in general terms about the purpose of this new policy development so that we can set the amendment in context and deal directly with it. However, I shall not speak in such general terms that I am tempted into a Second Reading speech, as others may have been. I do not want to go into the range of issues relating to means-testing and the Tory track record, by saying, ''I remember a pamphlet from Enoch Powell and Iain MacLeod''—

James Cran: Order. The Minister is doing what he said he would not do. Let us get back to the amendment.

Malcolm Wicks: The clause and the schedule it introduces create a new lump sum option for people who defer their state pension. It also brings forward the enhanced rate of accrual for increments and removes the time limit on deferral that was due to take place in 2010. I welcome the fact that the Opposition gave broad, although conditional, support to the proposals in the debate on Second Reading. There is common ground on the need for policy to reflect demographic change and the aspirations of a new group of older people who want to break from the ideas of ageing and retirement of the 1940s. It is crucial for that group that we remove the barriers to working that are still associated with attaining state pension age and promote the concept of a more flexible retirement. Furthermore, we are providing more opportunities and more choice.
 The new proposals for those who defer are part of that strategy, as are the new flexibilities in occupational pensions that will allow people to work on for their sponsoring employer. Those and other measures will be underpinned by the new age discrimination legislation. We expect that those progressive new measures will change over time the way in which people think about older life, which can only be good for them and will have a significant beneficial impact on society and the economy. 
 The measure is about giving people more options as they approach state pension age and improving the incentives that are currently on offer in the state scheme for people who want to extend their working life. An increased pension that is payable as a result of a delay in claiming the state pension has been part of the state scheme for decades.

Janet Dean: Has my hon. Friend considered allowing women, in particular, who have been unable to pay enough years' worth of contributions, the option to continue to pay national insurance contributions if they remain in work past 60, which is the normal retirement age?

Malcolm Wicks: I know about the issue, but I am not yet persuaded that we should throw away the established policy that we pay national insurance contributions up to the time when people qualify for the state pension. However, I am happy to discuss that with my hon. Friend outside the Committee. I know that she is interested in such matters.
 Deferring the pension has been an established part of our pension policy for some time, but relatively few people take it up. Only around 3 per cent. of people reaching state pension age do not claim their pension from the outset. In providing a more generous rate of accrual by bringing forward the change in rate from 7.5 per cent. to 10.4 per cent. for each year of deferral we will make that a more attractive option. 
 However, the improved rate for increments alone will not be enough of an incentive to encourage more people to defer. A new lump sum will give more people that incentive; it certainly gives them a choice. It will comprise the pension that is forgone during deferment with a generous rate of interest added weekly and compounded. We have made it clear that we intend that interest rate not to be less than 2 per cent. above 
 the Bank of England base rate. At current rates that would give 6 per cent. a year, which is a very fair return. The rate of return is only one part of a carefully structured package that will, when all the elements are taken together, ensure that people will see the benefits from working on beyond state pension age. 
 New tax arrangements will remove potential disincentives for those aiming for a lump sum. The hon. Member for Eastbourne (Mr. Waterson) touched on that. First, the lump sum will not be added to other income received during the year in which it is paid out. It will not push the person into the next tax bracket. Instead, it will be taxed at the marginal rate that applies to the person's other income. 
 Secondly, the person will be able to choose when to receive his or her lump sum payment, either when he or she claims the pension or, if he or she wishes, at the start of the following year. People who would see their income fall in the year after they claimed their pension could, in effect, choose to have their lump sum taxed at the rate that would apply to their usual level of income in retirement, not at the higher rate that applied while they were in work. Lastly, the lump sum will not count as income against the higher personal allowance for people aged 65 and over. 
 The other key component of the package is the protection that we intend to provide for those who take the lump sum and then claim pension credit, to which the amendment refers. Currently, capital of more than £6,000 affects pension credit through the so-called tariff income rule, which deems £1 for every £500 above that figure to be income. We will change the capital rules of pension credit, as well of housing benefit and council tax benefit, to ensure that we do not take back with one hand what we have given with the other. 
 The lump sum, coupled with the generous tax treatment and safeguards in the income-related benefits, will mean that pensioners on lower incomes, in particular, have a tangible reward for working on past pension age. People who would otherwise not want to take the actuarial risk that increments inevitably entail can, for the first time, look forward to a substantial pot of cash in their retirement. I am not talking about compulsion, of course. No one will be forced to work longer. We accept that working longer is not an option that everyone will want to take and not everyone will have the opportunity to do so. We are not taking away any options. People who want to work on and take their pension at the same time will be able to do so. 
 Of course, we recognise that giving people an additional choice will also require them to weigh up their situation and make a decision. That is why we will ensure that the Department provides information that explains carefully the options and how they are treated for tax and other benefit purposes. Some people may say that that will increase complexity. We prefer to regard such a measure as creating a new opportunity. 
 I was slightly disappointed—as I am on rare occasions—by the hon. Member for Northavon, who suggested that giving working people a choice about whether to defer their pension or have it as a lump sum would be a terrible new burden on working people. Increasingly, people expect choices in all areas of their lives and we want to bring choice into the welfare state, even if we have to bring the Liberal Democrats kicking and screaming with us. 
 The amendment's aim is perfectly reasonable. It would prevent the lump sum from being taken into account in pension credit. Opposition Members will be pleased to know that we agree with them on the spirit of the issue, but for reasons that I will explain, I cannot support the amendment in its present form. The apparently simple solution that it offers is unfortunately not as simple as it looks. That is true of many social security matters. Let us consider equal treatment. If we ignore the lump sum derived from deferring the state pension, I am advised that we will also have to ignore some lump sums that may be derived from deferred occupational or private pensions, because the other forms of pensions are in many instances replacements for the additional pension component of the state scheme. 
 Although simple in theory, there are serious difficulties with ensuring that the sums that could be treated as broadly equivalent to the state pension lump sum are correctly identified. In many cases, they may be far from straightforward and require the pensioner or the scheme provider to supply us with detailed information at an unwelcome cost to the provider. That leads me to my second reason for resisting the amendment in such a form. Primary legislation is not the appropriate place for a provision that by its nature will need to be detailed and have the flexibility to respond to the arrival of new pension products or to new interpretations by the court. 
 Section 15(6) of the State Pension Credit Act 2002 already includes a power to make regulations that allow specified forms of income or capital to be ignored. In due course, we will introduce regulations that reflect our proposals for achieving the objectives expressed in the amendments. We also intend to make equivalent changes to housing benefit and council tax benefit. Members will have the opportunity to examine all of that in detail. 
 We accept the spirit of the amendment. I heard what the hon. Member for Eastbourne said. We are not in the business of creating new opportunities for working people as they contemplate retirement by providing a lump sum and then simply taking that money away from other benefits to which they may be entitled.

Steve Webb: The quote from the Department's website does not say, ''We want to make sure that the lump sum is ignored when everyone claims'' a certain benefit. Instead, it says ''when most people claim'' a certain benefit. The Minister has implied that he wants to table an amendment in the spirit of our amendment, so that the lump sum will not count when everyone claims such benefits. Which is it to be: most people or everyone?

Malcolm Wicks: I would need to look at the appropriately named website. The hon. Gentleman, in his enthusiasm, may have made a contextual analysis of particular words that are not significant. It may be that we are assuming that most people will claim the lump sum, but some will not and they might have the deferred pension. Certainly, our intention is to ensure that we do not take with one hand what we give with the other.

Nigel Waterson: The Minister is becoming uncharacteristically vague on this precise point. The meaning of the amendment tabled by the hon. Member for Northavon and of our unselected amendments could not be clearer: the entirety of any lump sum taken on deferral of a state pension should be disregarded for the purposes of pension credit and other means-tested benefits. Will the spirit of that be enshrined in the amendments that the Minister will table on behalf of the Government, or will an exception be applied to some pensioners?

Malcolm Wicks: The spirit of the amendment is that the lump sum should not be taken into account when assessing pension credit. However, the precise way to introduce that is more complex than it seems, as is so often the case. That is why we cannot accept what seems a perfectly reasonably amendment from the hon. Member for Northavon. However, we intend to put that point into practice.

Steve Webb: The Minister's reply is helpful in the sense that he accepts the spirit of what we are driving at. If he has any further insights as I comment on what he said, I will be happy to give way. The Department's fact sheet was unclear on the matter, so it is helpful to put it on the record that he does not want anybody's claim for pension credit to be affected. That is not what it says on the Department's website, but I am sure that that will be changed by nightfall.
 The Minister gave two main reasons why he could not accept the amendment. One was that any exemption would have to apply not only to deferred lump sum state pensions, but to any private pensions that took their place. I understand that. It highlights again how many more pages of pensions law the Bill will create. I imagine that the regulations that implement what the Minister wants to do will have to be convoluted to cope with the situations that he describes. That adds to my feeling that we are creating complexity, so I am puzzled as to why we cannot implement the change in primary legislation. The Minister wants flexibility, but something is either ignored or it is not. I do not understand why he wants to reserve the right to change his mind quietly later. However, in line with the generous spirit in which the Committee has operated, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Steve Webb: So far, at least on this side of the Committee, we have concentrated our remarks on how the lump sum should be treated for the purposes of the means-tested benefit system. The clause makes important changes to the retirement pension, some
 of which are very welcome. However, other issues need to be dealt with and I hope that the Minister will respond to them.
 The provisions in clause 221 that bring forward the enhanced accrual for those who defer their state pension are welcomed unreservedly. They will provide people with an extra incentive to defer their pension and that is in the spirit of giving people new choices about whether to work longer and enabling them to do so. 
 The Minister was understandably quite succinct about the issue of deferral, and it is fair to say that there is little understanding or knowledge about state pension deferral. Precious few people do it at the point when they become entitled. The Minister gave the figure of 3 per cent; I have seen others but it is in that order of magnitude, or about one in 40. 
 As far as I am aware, the anecdotal evidence is that people deferred by accident. They did so because they were out of the country and did not claim on time or because they were married women who did not realise that they could claim when they were 60 as they perhaps thought that they must wait for the married pension when their husband reached 65. There is evidence that deferral rates among women and among people who live overseas are much higher than the average and that deferral currently seems, to some extent, to be a bit of an accident. 
 While we welcome the enhanced accrual rate for people who defer, I can understand why the Government do not think that it will make much difference on its own. It is a welcome change, but it will not change the culture in regard to people working on. 
 Deferring one's state pension is currently not promoted by the Government. The option is there and is in the relevant legislation, but the Government do not push it. I would like the Minister to tell us whether the Government will start promoting deferral and the lump sum. 
Malcolm Wicks indicated assent.

Steve Webb: The Minister is nodding, indicating that the Government will start promoting them.
 Of course, there is then the issue of mis-selling. There will be a set of people who should not defer or who should not take the lump sum—for example, someone who is terminally ill might be ill-advised to defer taking their pension. One can think of a raft of reasons why someone might be badly advised. If the Minister is going to promote such options—and in a sense the Government's whole rhetoric is about promoting people working longer, flexible retirement and so on—do the powers created in clause 221 risk the Government's finding that they have given people the wrong advice? 
 Deferral is a complex choice, because people have three options to choose from: to take one's pension now, take one's pension later, or take a lump sum. They have advantages and disadvantages for different people and the answer may be different for each individual. The Government implied that there would 
 be advice websites, but, as we have just heard, websites can be wrong. Therefore, how will that issue be handled? 
 A further question is: who is clause 221 meant to benefit? The Minister implied, and the Secretary of State's rhetoric was, ''Deferring one's pension brings lump sums within the reach of the poor; the rich have always been able to take lump sums and is it not great that the poor can have them?'' That is nonsense because the poor cannot afford to live without their pension. It is not rocket science that if they have no other money—[Interruption.]—they have to take their pension. If they were to defer taking their pension, they would not be able to claim pension credit, because they would be deemed to be in receipt of a pension. Therefore, when the Minister responded that the poor could now get a lump sum, several sedentary voices said, ''by working''. That is great, isn't it? The lifetime poor have suddenly got the option of a lump sum by working longer. Well, excuse me, but they had that option anyway. They could have worked longer and not taken their pension and spent it, but taken it, stuck it in a bank account and let it accrue for five years. Then it would be what is known in the trade as a lump sum. This measure does not give some exciting new opportunity to the poor, but says to them, ''Well, you have to work longer.'' The rich can have a lump sum because they can afford to defer their pension and live off their other income, but the poor cannot.

Nigel Waterson: Does the hon. Gentleman agree that an additional bolster to his argument is the fact that poorer people tend to be more likely to do manual jobs where perhaps the last thing that they want is to work for another five years in some back-breaking manual job? Indeed, judging by the available statistics, they might have retired well before the state retirement age in any case.

Steve Webb: The hon. Member for Eastbourne makes a sensible point. He is right that the lifetime poor are more likely than others to reach pension age with a poor pension, so their lump sums are likely to be less attractive than the sorts of figures that the Secretary of State quotes; the lifetime poor will not get about £30,000. Secondly, the lifetime poor might be dead before they reach some of the ages that we are talking about, and many of them will have stopped working years beforehand. It is nonsense for the Government to say, ''This is a great new vista of opportunity for the poor; they can have a lump sum, but only if they start working at 65 and work on.''
 This is not about the poor. It is about the rich. In two important respects, clause 221 is good news for the rich. It is a tax dodge for them; it is a nice little earner. Most of the public expenditure cost of clause 221 will be spent on assisting the rich. Why is that? There are two reasons. There are two options in clause 221—deferral or a lump sum. The rich can defer and pay less tax. A rich company director who wants to carry on working beyond the age of 65 can defer, and when he draws his pension, which will be enhanced under clause 221, he will get it at a higher rate, and because he does not have earnings to add on to it he will not 
 pay as much tax. As he is a higher rate taxpayer, if he drew his pension at 65 he would have to pay higher rate tax on all of it; if he defers, he will pay higher rate tax on his earnings, as he always would have done, but when he draws his pension after having stopped working he will pay standard rate tax, or whatever is the applicable rate. The option of deferring already exists but the clause makes it more attractive. It principally benefits the rich. 
 There is a second way in which the rich will benefit; it is potentially the sort of thing that we shall read about in the finance supplements of the Saturday and Sunday newspapers for years to come. It is a nice little wheeze. People might not defer; they might take the lump sum, and do so in a year when their marginal rate of tax is nil. Instead of taking their pension and paying tax on it—possibly at the highest rate—they might organise their affairs so that they work for as long as they want and then stop and draw a hefty lump sum after ensuring that they have hardly any income in that year by pushing some of it into the preceding year and some into the following year. What rate of tax will they pay on their lump sum, which could be £30,000? The answer is nil. They might have paid 40 per cent. if they had drawn it as a pension. So, guess where the public expenditure cost of clause 221 will go. The answer is, to the rich. 
 We support bringing forward the enhanced accrual, but we oppose the grotesque parody of what is contained in the clause that represents it as anything other than a source of new loopholes for the well advised and a trap for the ill advised. We probably will not oppose the clause, but although there are some good things in it there is a lot that is not.

Nigel Waterson: I am happy to endorse much of what the hon. Gentleman said, but I hope that he will forgive me for saying that I am unsure why he is so supportive of the clause if he resents the fact that it will help richer people and not poorer people. It was apparent from what he said that the Liberal Democrats do not have much time for richer people, but in my opinion they do have a role in society.
 I want to focus on some of the more significant issues. This is an important part of the Bill, or at least so the Government tell us; the Secretary of State made it a centre-piece of his last party conference speech. However, he has a slightly patchy track record with his party conference speeches. If I remember correctly, he made a commitment about not selling our skies shortly before the Government did a U-turn on air traffic control, but let us leave that in the past where it should be left. [Interruption.] There was a ripple of interest from the Labour Benches. Just because the Secretary of State chose to put something in his conference speech does not mean that we should assume that it is an important provision that will make a difference to a lot of people. 
 The appeal of the clause is limited. When the Minister winds up, it would be interesting to learn whether the Department has any projections or planning assumptions as to how many people are likely to take up this option. As we have already established, deferral has been around for a long time; it is nothing new. It is the lump sum that is the new 
 part. I broadly agree with what the hon. Gentleman says about the accrual rates, but there are three or four factors that might limit the appeal of deferral. 
 We have talked about means-testing. For the moment, and at least until we see the detailed provisions, I am prepared to take what the Minister says at face value. As I understand it—I shall be reading Hansard closely tomorrow—the Minister has made it clear on behalf of the Government that everyone who has a lump sum under the provision will have it totally disregarded for the purposes of pension credit and other means-tested benefits. I stress the words ''everyone'' and ''totally''. If I have got that wrong, the Minister will no doubt leap to his feet, and frantic notes will come his way on the subject, so let us assume that that part of the matter has been sorted out. 
 If my understanding is correct, that fact should be made abundantly clear in advertising, so as to avoid the fog of confusion and complexity that hangs over the pension credit in particular, and means-tested benefits in general. That way, no one would be in any doubt, and no one would be put off deferral by not knowing the answer to the conundrum. Not everyone lives, drinks, sleeps and breathes pensions, as the Committee is doing. It is important that that fact is made clear, so that doubt on the issue does not affect take-up of the option. 
 Another important factor is the actuarial approach. We tabled an unsuccessful amendment that did not make the grade, which suggested, in rather broad terms, that clause 221 should stipulate: 
''Prior to the payment of any pension increase or lump sum under this section, there shall be a duty upon the Department of Work and Pensions to provide full actuarial and any other relevant information to any individual who may be considering deferring their pension''
 under the provision. On an actuarial basis, the hon. Member for Northavon may well be right. If a person is engaged in a heavy, physical job, probably the last thing that they want is to carry on working for another five years, even if there is a lump sum at the end of it. Actuarially, they may not make it anyway. They may not even have made it that far. According to the statistics in the Library brief, the chances are that such a person has already given up work. The statistics suggest that many people leave the work force well before they reach state retirement age. 
 A Department for Work and Pensions report produced in February last year, report No. 182, shows the percentage of men and women still in the labour market at various age groups. In the group aged 60 to 64, only 45 per cent. of men are still in the labour market. At 65 to 69, that has fallen to 13 per cent. Perhaps the provision will make that figure increase, but it is the 45 per cent. figure on which I am focusing. The trend begins even earlier, because at 50 to 54 years of age the figure is 82 per cent. That means that nearly a fifth of men have left the labour market, for whatever reason, by the time that they reach that age group. 
 For many people, deferral simply will not be an option. Despite the hon. Gentleman's slightly ''class warrior'' approach to the issue, he may well be correct 
 to say that large numbers of manual workers and poorer people will not benefit from the clause. 
 Another factor is the Government's lamentable failure on age discrimination. Prior to the 1997 election, I remember hearing, as might you, Mr. Cran, a clear manifesto commitment to legislating against age discrimination as a matter of urgency—I think that was the phrase. The Parliamentary Private Secretary may check that if he wants to, but I have the proof somewhere if there is any dispute about it. [Interruption.] I am talking about a clear manifesto commitment, which has not yet been met. 
 There is still enormous unfairness across the country because of age discrimination. People are being forced out of work when they hit 65. Someone once described that situation by saying that a person's birth certificate becomes their P45. Indeed, there is also the problem of much younger people losing their job and being unable to get another one. If the Government are to back up what is purported to be the aim behind the clause, they will have to do something soon on age discrimination. The reality is that they will have to do something. However, that will not be of their own volition because they are being forced to do so by the European Union and must have something in place by 2006. 
 The real issue is how serious the Government are about helping older workers who wish to continue working up to or beyond the usual retirement age. Let us not forget that there is no particular magic about the age of 65. It was conjured up in a different era. When Bismarck set up German pensions, he alighted on the age of 65 as the retirement age. A lot of people did not reach that age, but those who did only lived for a few years beyond it. 
 We are now in a different era. Indeed, only yesterday the Institute of Actuaries and the Faculty of Actuaries produced a chilling report about increased life expectancy, despite all the worries about obesity and so on.

Malcolm Wicks: That is encouraging.

Nigel Waterson: The Minister is absolutely right. It is good that people now live longer and, on the whole, lead healthier lives. If they wish to continue working, it is important that they are encouraged to do so. I am pleased that the Government—at least for the moment—are setting their face against compelling people to work longer than the existing retirement age.
 According to the Institute of Actuaries and the Faculty of Actuaries, the cost of purchasing an annuity for a male aged 65 beginning in 2019 could be anything from 34 per cent. to 60 per cent. higher than it is at present. That is staggering, given the unimpressive deal that is currently available for the purchase of annuities. Various suggestions are made in the report, including the abandonment of the concept of a retirement age altogether in favour of a more flexible formula in that individuals should draw a pension from the same scheme beginning at older ages. I hope that there is not a sub-plot and that the 
 Government are not just saying that we will all have to work longer just to afford a decent retirement. Much concern is felt about how we adjust the pension system to the increased life expectancy.

James Cran: Order. I hear far too many conversations in the Room. I wish to hear the person who is speaking, as I expect do other members of the Committee. If they do not, there is a Corridor outside.

Nigel Waterson: That was nice of you, Mr. Cran. Clearly, the Government are keen to encourage people to work beyond the age of 65. As I suggested a moment ago, they must be careful that they are not sending the wrong signal to the wrong people. The hon. Member for Northavon seems outraged and says that the proposal is a charter for middle-class tax dodgers. Equally, there will be a raft of people, who the Government are purporting to help, for whom the provision will not be a realistic option.
 When we reach the accompanying schedule, I hope that we shall have a more detailed discussion about how the lump sum is to be calculated. I return to our failed amendment No. 156. What arrangements does the Department intend to put in place to ensure that, when people make such a judgment, they are as fully informed as possible of the consequences? To what extent will they be advised whether they will be better off taking a weekly increase in their pension and whether that will be better for them in the long run or whether the lump sum is the safe alternative because it carries no actuarial risk? There is still the actuarial risk between the ages of 65 and 70. Am I right that, if a person passes away between the ages of 65 and 70, no tangible benefit will be gained at all from such an option? It cannot be passed on to one's nearest and dearest. 
 People need to be told about such issues. Matters certainly need to be brought to their attention. As we know, whether in the context of failed occupational pension schemes or whatever, most people are either too busy getting on with their lives when they are younger to ask a lot of these deep questions, or they take things at face value and carry on running their lives, with their jobs and families and so on. The Government are under a major obligation to be up front with people about the benefits and disbenefits of going for this option—unless this is merely something to stick in a party conference speech, which will not have much effect in the real world.

Malcolm Wicks: I for one wanted to listen to the hon. Gentleman's speech. The fact that all his colleagues are in the Corridor is not something on which I wish to comment. However, I know that they will read his speech in Hansard tomorrow, as will we all.
 Sometimes one is disappointed, even someone as optimistic as I. Once again, I was disappointed by the approach of the hon. Member for Northavon, although there are some things for which we are grateful. He welcomed enhanced accrual and I welcome his welcome. That is important. He asked whether we would promote the new policy. Of course 
 we will promote it—not in the sense of telling people, ''You should take the lump sum'', or ''You should defer your pension'', but by saying, ''Here is a new choice. We are in the 21st century and there are now choices for you. We want to lay out what those choices are''. We as a Department cannot be people's actuarial advisers. However, we will certainly lay out the choices. 
 Why is the hon. Gentleman so against choice? I cannot understand that approach at all. It is a 1940s or 1950s approach; perhaps it is the approach of the National Insurance Act 1911, which was introduced by one of the more recent Liberal Governments—perhaps the most recent example of such a Government on which we wish to draw. It is as if he were to go into a shoe shop and the store manager said, ''Yes, we sell shoes, but we only have brown ones in this design, and you must have size 11''. That seems to be his approach to state pensions. However, we are trying to say to people, ''In the 21st century, when life expectancy is increasing, you have choices. You may want to take the basic state pension at the appropriate age—equalising up to 65 for men and women—or you may want to consider deferring it and, perhaps, taking it one day as an enhanced, deferred pension. You may even be attracted by the idea of a lump sum''. We want to give people those choices and promote choice, not one option. This is where our 21st century social politics has to get to. Although I am disappointed by what the hon. Gentleman said, I shall let him recant.

Steve Webb: One consequence of choice is that some people will make the wrong choice. Some people will make a choice that any fair-minded, independent person would say was clearly the wrong choice. A terminally ill person who chooses to defer would lose everything.
 Will the Government take any responsibility for creating winners and losers through this new choice? People had the choice about personal pensions, and there was mis-selling. After that, the Government said that the providers should put it right because people made the wrong choice. Do the Government accept any responsibility, or are they happy to accept that some will gain and others will definitely lose?

Malcolm Wicks: The Government of the day cannot nationalise the risks of making choices. We all make choices about our education, our employment, whether to rent or buy, and what house to buy. It would be absurd if we were to regard these choices as so awful and complex that it was a bad syndrome affecting society. We want to bring in these choices.
 When someone approaches 65, many people—certainly most people for the time being—will decide to take their state pension. That is their choice. They might say, ''I have worked hard all my life. Here is an entitlement, and I want to take it''. Others who are still enjoying work and are able to work with an employer who wants them to continue might say, ''No, I want to work on. Why should I retire suddenly because it is my birthday, and regard myself as a retired person when I want to continue working?'' That is the choice that they make. If a year later they regret that choice, is it seriously being suggested that the Government would 
 be to blame and should pay compensation? That would be an absurdity. 
 Similarly, for those who defer by a year or five years, the choice whether to take the lump sum—it could be £5,000 or £25,000 depending on the number of years—or the deferred pension involves some thinking. People might want to take advice from friends, the citizens advice bureau or elsewhere. The idea that the Government should nationalise that risk and be responsible if someone chose to defer their pension but later felt that that was the wrong choice for whatever reason is absurd. People make choices about sending their children to this or that comprehensive school. Sometimes they make mistakes and, 10 years on, wish that they had chosen another school, but should the state be responsible for that? With all due respect, the hon. Member for Northavon is looking backwards to the early part of the previous century. I encourage him to be more optimistic and look forwards.

Nigel Waterson: As always, I am following the Minister's comments carefully. Does he envisage that this is the sort of issue on which employers will be required to give information? Later in the Bill, we shall see that he is keen to ask employers to provide information and advice on pensions, and there is a lot of sense in that broad concept. However, the interaction between state and occupational pensions and means-tested benefits is one of the bugbears of the pension scene. Does the Minister expect employers to offer advice?

Malcolm Wicks: It would not be an employer's task to say to a worker that they should make that choice. It is the responsibility of decent employers to counsel people about opportunities to continue working in the company and the associated pension implications. Many do that through occupational welfare advisory schemes.
 I encourage Opposition Members to think through this important point. In the 20th century, British society and the British economy discovered retirement—as the hon. Member for Eastbourne said, it happened earlier in Germany. For the first time in our history, working people were outliving their working lives. Encouraged by the then pensioners movement, the state, in the personification of Lloyd George—one of the colleagues of the hon. Member for Northavon, although not a current one—introduced the old-age pension in 1908. We then saw a growth of state and occupational pensions. Not surprisingly for the era, those pensions tended to be tied to certain chronological dates. A person received his pension at 65 or whatever it was. He had to retire from the civil service at 60. Retirement was linked to particular ages. 
 To outline the broad social philosophy governing our approach to social policy in this area, our contention is that the connection between retirement and one particular age is debilitating and a nonsensical bit of one-size-fits-all welfare state-ism. We want to move away from that. I am more liberal about this than the hon. Member for Northavon, and we are already seeing in the 21st century that individuals are making proper choices about their working lives and retirement lives. I said earlier that we want to move to 
 a situation where at a certain age a person could draw their pension from a company or a public service, but still work for them. Why should it be one or t'other? 
 To answer the hon. Member for Eastbourne, a policy on age discrimination will be introduced in 2006. He talks about our manifesto commitment, but later we shall consider his party's commitments. This Government are introducing law to outlaw age discrimination, and we are already working with employers to try to counter the debilitating consequences of such discrimination. I know from talking to my constituents that age discrimination is often as debilitating as sexism or racism in its effect on individual life chances. 
 There will be a choice. We are moving away from the absurd notion that someone has to retire at 65 and towards a situation in which someone can decide whether he or she wants to retire at a certain point or not. That also has implications for occupational pensions and retirement ages in general. If people want to retire, they will be able to do so. There are no plans to increase the state pension age. That is yesterday's politics, not today's social policy. Someone can also decide to take the deferred pension or have the lump sum. I hope that Committee members will reflect on that and consider supporting the clause.

Nigel Waterson: I want to pick up one of the Minister's themes. The Government seem to be sending a clear message that they want people to work longer. I leave aside the age discrimination issue. As a result of pressure from the European Union, they are doing something about that, albeit nine years too late.
 The Government are raising the age of possible retirement to 70 for people who make that choice, and they are also raising the early retirement age, through the Finance Bill rather than this Bill, from 50 to 55. Is the Minister aware of the joint campaign of Equity, the actors union, and the Professional Footballers Association? They are both outraged that in the small print the Government intend to scrap a long-standing indulgence granted to professional sportsmen and women, dancers and others which enables them to retire relatively early—at 35, for example—because of the physical requirements of their professions. Will he confirm that that is the intention? What sort of overall message are they trying to send to people who are in work?

Malcolm Wicks: After Saturday I am too embarrassed to mention the team that I support. Clearly, 10 or 11 of the players had retired halfway through the game.
 My understanding is that about 1 million people work after state pension age. My guess is that the numbers will increase. I have lost my precise note on this, but from memory I believe that people's retirements after the state pension age last about 20 years. For women it is longer and for men slightly less. The length of retirements will increase as the century unfolds. The idea that we should have policies that do not give people choices about working after 
 the age of 65 is wrong. Opposition Members are arguing against the social and economic tide. 
 I understand the fears, but we need to counter them. This is not about surreptitiously raising the state pension age. The hon. Member for Northavon said that we were almost doing that through the lump sum. That is nonsense. People can take the basic state pension at 65. There are choices about whether to continue working and whether to take a lump sum. 
 The hon. Member for Northavon, in another moment of cynicism, tried to pour cold Liberal Democrat water on the lump sum idea. Speaking as an egalitarian and a socialist, I think that enabling people to have a lump sum is important in our pursuit of equality. The issue is about choice being enhanced in the pursuit of equality. 
 Many in our society and in this Room take it for granted that, as part of our pension entitlement, we can take a lump sum to do what we want with, as well as receive a good weekly pension. That has never been a choice for many of our constituents who have never seen £500, let alone £5,000 or £25,000. To enable people to have that option is a proper choice. It will liberate them and enable them to have the wonderful and happy old ages that they deserve.

Steve Webb: The Minister says that the poor now have the chance to get 500 quid. They have always been able to take their pension and, if they could manage without it, put it in an account and draw it out 10 or 20 weeks later when it had accrued to £500. That has always been an option. It is absolute nonsense to say that that is a new choice for the poor. He has not answered my question about the public expenditure cost of the provision.

Malcolm Wicks: As a matter of logic, surely the hon. Gentleman accepts that the lump sum option did not exist before. It now exists, or will do so subject to the will of Parliament. By definition, that is a new choice for working people.

Steve Webb: I do not accept that the lump sum option did not exist before. As I said, people could always have the pension and, if they could manage without it, put it in an account, let it accrue and draw it out after one, two or five years. The only difference between that and what is in the Bill is a few per cent. extra on the interest rate, which we will return to when we discuss schedule 10. The principle is that that option has always been available to the rich because they can manage without their pension and the poor cannot.
 The Minister has not told us the public expenditure costs of the clause and he has not answered the specific question about whether most of that will go to the well-heeled. This new choice is basically for the well-advised. I do not suppose that citizens advice bureaux will want to start advising poor people about those sorts of choices, as he suggested, because they will not be qualified to do so. It will be the well-advised who benefit.

Nigel Waterson: Does the hon. Gentleman agree that despite being asked to do so, the one thing that the Minister has not given us is his Department's projections on how popular the choice is likely to be?

Steve Webb: I am sure that the Government are wary of making such projections, because that choice may not be widely taken up, and we all know who will take it up—the well-advised and the well-heeled.
 As the clause at least contains an enhanced accrual brought forward, we will not try to remove it. However, the Minister is kidding himself if he thinks that it has anything to do with egalitarianism or socialism because it is a new tax dodge for the well-heeled and the well-advised. 
 Question put and agreed to. 
 Clause 221 ordered to stand part of the Bill.

Schedule 10 - Deferral of retirement pensions and

Steve Webb: I beg to move amendment No. 228, in
schedule 10, page 219, line 3, leave out '(b)' and insert '(a)'.
 The amendment relates to one specific point in relation to the detail of the proposed option of a lump sum or an enhanced accrual rate. If people do not take their pension, perhaps because they were out of the country or forget to claim it, and if that is not an active choice, what is the default position? Are they deemed to be building up an enhanced weekly pension or a lump sum? As I understand it, the Bill defaults to the latter. In other words, it assumes that someone who did not claim their pension on time wanted to build up a lump sum. I recognise that a similar change would have to be made to other parts of the Bill were the spirit of my amendment accepted. I am suggesting, and probing the idea, that the default might more usefully be an enhanced rate of state pension, although I appreciate that there are pros and cons in relation to that. 
 If I do not claim my pension on time and suddenly realise a year later that I should have claimed it—that sort of thing happens—and if I had not identified which option I wanted, the Government would, presumably, send me a cheque for £4,000, or something like that, as soon as I made my claim. That could occur if I were out of the country, which seems to be quite common, or if I were a woman who thought that she needed to wait until her husband was 65. I am trying to work out how the measure might operate. If I did not actively choose, would I get a cheque for £4,000 and then get the pension that I would have got a year earlier? 
 I want the presumption to be that people in that situation get the higher pension. I do not understand why there has to be a presumption at all. Why are people not just asked about it? I will not labour that point because I am sure that there is a good reason for it. However, when a person has made contact with the system, why do we not just say to them, ''You can either have £4,000 or a higher pension. Which would you like?'' Presumably, there must be some contact with the person if they are to be paid the pension, so I 
 am a little hazy about why there needs to be a presumption. If there is to be one, why is it presumed to be the lump sum option? 
 It might be argued that if we were to presume, as the Government want us to, that there is a lower pension and a lump sum, there would be an enhanced means-tested benefit entitlement. Therefore, it might be a case of them being generous—perhaps inadvertently, through their default—by saying, ''We will have the lower pension option, which will mean that the state incurs more means-tested benefits.'' That might be to the advantage of the individual. 
 Everything is a bit muddy. The purpose of the amendment is to ask some questions. Why have the Government chosen that default? Why do we need a default? What is their thinking?

Malcolm Wicks: The hon. Gentleman raises an interesting point, but I hope to demonstrate that the measure will apply to relatively few people, although I suspect that they will all be in the Northavon constituency and he will write to me about each one.
 The amendment would deem a person to have chosen increments if they had not made a choice within the time limit to be set in regulations. To be fully effective, parallel amendments would be required to proposed new paragraph 3C of schedule 5 to the Social Security Contributions and Benefits Act 1992 and paragraph 1 of new schedule 5A. The Bill provides for a person to be treated as having chosen the lump sum in such cases. 
 I was asked why we have this deeming provision. Once a person has ceased deferring and claimed their pension, they have established entitlement to either the lump sum or to a pension increase. We do not think that it will be satisfactory to leave that entitlement unpaid. If someone has ceased deferring and claimed a pension, it would be logical for them to say quickly which option they wanted to go for, but the plan is simply to deal with what I imagine will be the relatively few cases of those who do not specify their choice for whatever reasons. The provision ensures that the pensioner will receive his or her due entitlement in those rare cases. 
 Why have we made the lump sum the default award? The argument is balanced—things are not 100 per cent. on one side or the other. In pure financial terms, we recognise that over time increments are likely to be worth more than the lump sum, depending on life expectancy. Our information to our customers will show that. However, the potential flaw is that the person must live long enough to benefit—about 10 years beyond the date when they stopped deferring—to get back the pension that they gave up. 
 We do not think that it is right that we should take the actuarial risk on the pensioner's behalf. This goes back to an earlier discussion about the nature of adult choices in a grown-up society. In this context, the lump sum is the safer option. We instinctively feel that the majority of people in that position would prefer the security of a lump sum. As a further safeguard, regulations will allow the person who has been awarded the lump sum in the absence of his or her positive choice to return the payment and take 
 increments instead if they so wish. We are trying to develop a fail-safe scenario.

Steve Webb: The Minister's response has been helpful. It is odd that some people might contact the authorities to cease deferring, but when the question arises of how they would like to receive their money, they do not answer. I can, however, conceive of circumstances in which that might happen, so I see the need for a default.
 It had not dawned on me that the Department's default is the cheaper option. I should have presumed that that would be the case. Interestingly, the Government are nationalising the risk on this occasion. They have decided that the default should be the option where the person is guaranteed the money because they do not want to take the chance that they might not get it. They are happy for the individual to make that choice, but not for the state to do so, which is a curious approach. 
Malcolm Wicks rose—

Steve Webb: I am about to withdraw the amendment, but I run the risk of being ungenerous, so I am happy to give way.

Malcolm Wicks: We are trying to work out what is best for the individual, but the state has to make that choice. This is not nationalisation; it is more of a public-private initiative.

Steve Webb: That is fascinating. I will not go into the philosophy of the matter, but the state trying to work out what is best for the individual is paternalism, the opposite of what the Minister argued on the previous amendment. However, he has dealt with my point satisfactorily, especially given that people have the option to change their mind. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Steve Webb: I beg to move amendment No. 226, in
schedule 10, page 220, line 33, at end insert 
 'which shall be not less than two percentage points greater than the base rate of the Bank of England.'.

James Cran: With this it will be convenient to discuss amendment No. 227, in
schedule 10, page 223, line 11, at end insert 
 'which shall be not less than two percentage points greater than the base rate of the Bank of England.'.

Steve Webb: The amendment deals with another detailed aspect of the way in which the lump sum is to be calculated. I never thought that, in an explanatory note to a Bill, I would see the sentence,
''The formula at paragraph 3B(3) applies the 52nd root of this figure to the amount accrued''.
 The 52nd root is not a concept that often comes up, but here it is. Essentially, the note says that, if someone defers their pension, the money is treated as if it were in an interest-bearing account. The question is what the rate of interest should be. The rate of interest is R in the Bill, and R is determined by affirmative procedure, if I understand it correctly. However, the Government have gone further. In fact, the Minister went further this afternoon and said that 
 the rate would be not less than—I think that was the phrase he used—two percentage points greater than the Bank of England base rate. He got plenty of ''Hear, hears'' from his side when he said it. As ever, we wish to be helpful and spare the Secretary of State effort and time, so we would simply put it in the Bill that R—the amount to which the 52nd root is applied—should always be at least two percentage points greater than the Bank of England base rate. 
 The Minister might ask, ''Why do we need to tie our hands and put that sort of thing in the Bill? Surely that should go in regulations.'' Clearly, the power to raise the rate to make accrual more attractive will be effected in regulations. Nothing in our amendment prevents the Government from doing that. The only thing that our amendment prevents them from doing is being mean. Given that the House was assured on Second Reading that they were making a generous lump sum provision of at least 2 per cent. more than the bank base rate, the amendment simply prevents the Secretary of State from going back on his word. As he would not want to do that, I assume that the Minister will accept the amendment. 
 I am aware, as I was with the previous amendments, that the letter R appears many times on its own in the Bill, specifically in formulae. Therefore, there may be lots of Rs other than the two mentioned in the amendments and that would need to be addressed. The key point is that the only difference between the world now and the world under schedule 10 is that, whereas at present people can stick their pension on one side in an interest-bearing account and draw it as a lump sum at the end, under the schedule, the Government will effectively do that for them at a better interest rate. In theory, at least, that is what is on offer. The simple purpose of the amendment is to ensure that the Government always do that on at least the favourable terms that the Secretary of State mentioned to the House. 
 I have one other point that needs clarifying. I am not clear whether the Government envisage a tracker proposal for the interest rate. The Secretary of State said that the weekly rate at which the lump sum accrues will be at least two points above the prevailing Bank of England base rate in the week in question. I am not clear—obviously this relates to the amendment—about what will happen in a year when, for example, the Bank of England base rate rises. How will the lump sum be calculated? Will the regulations that the Government introduce specify a figure and say, for example, ''R shall be 6 per cent.''; or will they say, ''R shall be the base rate plus X per cent.'', which would mean that the figure could change during the course of the year? In a sense, are talking about a tracker rate or a fixed rate, perhaps for a year? The Government's policy intention is not entirely clear. 
 The amendment is consistent with what the Government have promised. The only thing that it prevents the Secretary of State from doing is breaking his promise. He would not want to do that, so I am sure that the Government will want to accept it.

Malcolm Wicks: I am advised that root 52 refers to something as mundane as the number of weeks in the year. I thought it might be an out-take from the ''Route 66'' recordings, but apparently not.
 The Opposition amendments would impose a condition on the exercise of the power to make regulations that set the lump sum interest rate, as the hon. Gentleman said. They would provide that the rate set should be not less than two percentage points above the Bank of England base rate. In the spirit of the amendment, I take it for granted that Opposition Members also intend that that should be extended to the interest rate for lump sums for shared additional pension, although their amendments omit the necessary reference. I suspect that the true motivation is to test the Government's commitment to maintaining the lump sum interest rate at that level. 
 I ask colleagues to oppose the amendment for two reasons. The first is on practical grounds. There will necessarily be a time lag between the Monetary Policy Committee announcing a change and that change taking effect because we will need parliamentary approval for regulations and time to make changes to our computer systems. Those regulations would be ultra vires for any period during which the rate is out of kilter under the current regulations. We would have to make payments based on rates that were not covered by parliamentary approval. Changes will, for practical reasons, need to be implemented from a future date, but the amendment would not allow that. We will not make rate changes retrospectively for the simple reason that if a payment has been made under the then rules, we will need to recalculate awards and, if necessary, recover overpayments, and so on. 
 Secondly, the amendment is not necessary. We have stated our intention to maintain a lead over base rate of at least more than 2 per cent., which we consider provides a fair reward. The affirmative procedure will apply to regulations setting the lump sum interest rate, so it will always give Members the opportunity to call the Government to account. I therefore ask the hon. Gentleman to withdraw his amendment—[Interruption.]

James Cran: Order. I suspend the Committee.
 Sitting suspended for a Division in the House. 
 On resuming— 
 Motion made, and Question proposed, 
That the Order of the Committee [9th March], as amended [this day], be further amended, by inserting 'New Clauses relating to Part 6' after 'Clause 195'.—[Malcolm Wicks.]

Nigel Waterson: I do not have the slightest intention of debating the motion for more than a couple of minutes, but I wish to put down a marker of the fact that by agreeing to that modest change, which is for everyone's convenience, we have tried to assist the Liberal Democrats, who tabled the new clauses, and the Government, because of the likely logjam of their new clauses at the end of our Committee proceedings. At the same time, I wish to make it clear that Conservative Members will resist tooth and nail any
 further changes in the batting order of our proceedings. It is high time that we stuck with what we have, and got on with it. Apart from that, we agree to the motion.

Steve Webb: I thank the hon. Member for Eastbourne, the Minister and the Whip for being so constructive and co-operative. It is logical to discuss the state pension material together, so that we have more time at the end of our proceedings if we need it, to discuss Government new clauses. I support the amendment to the programme motion.

Adam Price: On a point of order, Mr. Cran. Does the motion preclude tabling further new clauses to part 6 in later proceedings?

James Cran: I am advised that that must be done by the end of today.

Adam Price: Further to that point of order, Mr. Cran. Before the informal meeting of the Programming Sub-Committee that took place while we were suspended for the Division, we would have had considerably more time available to draft new clauses to part 6. The motion does not give us much time to table any.
 Question put and agreed to.

Nigel Waterson: On a point of order, Mr. Cran. In theory, can further new clauses relating to the state pensions part of the Bill still be tabled later, and debated on the last day of the Committee stage?

James Cran: I am afraid that I am advised that that is not so.Schedule 10 Deferral of retirement pensions and shared additional pensions

Schedule 10 - Deferral of retirement pensions and

Amendment proposed [this day]: No. 226, in 
schedule 10, page 220, line 33, at end insert 
 'which shall be not less than two percentage points greater than the base rate of the Bank of England.'.—[Mr. Webb.]
 Question again proposed, That the amendment be made.

James Cran: I remind the Committee that with this we are taking amendment No. 227, in
schedule 10, page 223, line 11, at end insert 
 'which shall be not less than two percentage points greater than the base rate of the Bank of England.'.

Steve Webb: The Minister has given two reasons why he would resist our amendments No. 226 and 227. Apart from the fact that other amendments would need to be tabled alongside them, one reason was that his computers would have trouble keeping up. That was a startling reason, because I imagine that regulations can be framed to reflect the fact that there will be a lag between the Monetary Policy Committee changing the rate and the application of the new rate to pension accrual. I accept that there is a practical issue to be resolved. The other argument was that the amendments were not necessary because the Minister is an honest sort of guy.

Nigel Waterson: A straight kind of guy.

Steve Webb: That is what I meant. I was greatly heartened to hear that other argument. I am slightly disappointed that the Minister wants to reserve the right to go back on what the Secretary of State said in the past and reject these amendments. However, in a spirit of trust, and given the generosity that he has shown me this afternoon, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Steve Webb: I beg to move amendment No. 229, in
schedule 10, page 221, line 38, at end insert— 
 '9A After paragraph 3C (inserted by paragraph 9 of this Schedule) insert— 
 ''Treatment of lump sum where deceased pensioner has no spouse 
 3D Where a person has accrued a right to a lump sum payment under paragraph 3A of this Schedule, and where such a person has no spouse, the value of the lump sum accrued by the time of death shall be payable to the estate of the deceased.''.'.
 I have one further detailed proposal in relation to schedule 10. It is significant, because at present, if I, as a single person, draw a retirement pension and then I die, that's it—[Interruption.] Obviously, that's it anyway—[Interruption.] Yes, that is indeed a subject for a much wider debate, but that's it as far as the national insurance fund is concerned. 
 However, if I were—as indeed I am—a married man, and I died, my widow would have some claim on my contribution records, so the national insurance fund would have a continuing interest in my situation. When we apply that logic to the lump sum, the argument is that if, as a married man, I defer taking my pension, decide to draw a lump sum and then die, my widow has a claim on the lump sum. The Bill seems to me to correspond with that idea, although I may have misunderstood it—but I think that I am right. If I am a single man and I defer, my estate has no claim on the lump sum. 
 Is there an imbalance between the incentives for single people and those for married people to defer and opt for a lump sum? Is a lump sum a bad idea for a single person because they might lose the bet and die? All things being equal, it is less attractive for single people to defer than it is for married people, because the single person's estate will not get the money. Is that not a rather peculiar by-product of the new lump sum arrangement? Would we not even up that peculiar asymmetry if single people had the right to bequeath their lump sum, which they might not yet have drawn, as part of their estate? 
 Presumably, the Government want people to use this provision. They would not have introduced it if they were not going to promote the option. The Government want people to defer and take the lump sum, or at least think seriously about the options. It would be odd if single people thought, ''It isn't worth my while, because I might never see this money, and neither will my heirs,'' while married people thought, ''Yes, this is a good idea, because even if I die and lose the bet, my spouse will get some of the money.'' My amendment would level that infamous playing field between single and married people, and give them equivalent incentives. I am not suggesting that the whole of the lump sum should go to the estate; I would 
 intend whatever would have gone to a widow to go to the estate, although perhaps my amendment would not achieve precisely that. I shall be interested in the Minister's reflections. Does he feel that there is asymmetry between single and married people? Is that a deliberate policy or an accidental by-product, and does he feel the urge to do anything about it?

Malcolm Wicks: That is an interesting point. The hon. Gentleman talked about the choices available to him at the point of his own demise, but I am glad to say that he looks very well. Scores of people in the Department's parliamentary questions unit depend on his good health; they would otherwise be redeployed to the edges of our kingdom in Jobcentre Plus outreach units.
 The aim of the Opposition amendment is to allow a lump sum to be paid to the estate when the individual who deferred died before claiming and was unmarried at the time of death. Perhaps we should start a dating agency to stop that anomaly from happening. 
 The amendment is not fully effective, but that does not matter, because the principle behind it is apparent enough. The provisions dealing with lump sums for a surviving spouse are, in effect, an extension of the current rules entitling a spouse to increments on his or her own pension in respect of the deceased spouse's deferment. That recognises that marriage implies enduring mutual financial support and obligations. However, the amendment would go further by requiring the lump sum to be paid to the estate of a deceased deferrer if there were no surviving spouse, or no spouse at all. 
 As matters currently stand, we do not think that is the right approach. There is, of course, an argument to be made about the equity of treatment of married and unmarried couples in social security law—an argument that the hon. Gentleman has made in part, and which has been the subject of a number of cases in the European and domestic courts. I suspect that this Parliament will hear more about it as the years and decades unfold. However, that is not the subject of today's debate, because it goes far wider than the relatively narrow issue of the potential inheritability of the state pension lump sum. This is not the place for such a discussion. 
 The amendment would allow children, or any other beneficiary of the estate of the deceased, to benefit, and to treat the lump sum like any other windfall payment. I do not accept that that would be a proper use of the national insurance fund, the basic purpose of which is to provide support for pensioners in their retirement, not to support their heirs. Ironically, under the amendment the amount paid to an estate would be greater than the sum payable to a spouse, because a lump sum for a surviving spouse would be adjusted in line with the rules on inheritance of additional pension. 
 I hope that the hon. Gentleman, who has raised an interesting question, will, after listening to my rather 
 interesting answer, consider withdrawing his amendment.

Steve Webb: I will, because it if the amendment is not right it should not go forward. Whether or not there is an argument about whether this is a technicality or an anomaly—and it was the Minister who used the word ''anomaly'', not I; or perhaps we both did—the danger is that the Government's policy will be thwarted if for every person faced with a choice between taking their pension now, deferral, or a lump sum, the answer to the question, ''What happens if I choose the lump sum and then die?'' is, ''You've lost it, pal''.
 The pension is contributory. The Minister used the word ''windfall''. Perhaps the money would be a windfall for the kids, but it would be a windfall from a pension that someone earned but will never receive. Obviously, no one who dies before the state pension age will get what they have paid for, but we are talking about people who may well have lived well past state pension age, yet who might never see a penny of their contributory pension.

Malcolm Wicks: What does the hon. Gentleman feel a pension is for?

Steve Webb: One of the critical factors is that we are talking about a national insurance contributory pension, which provides a way of smoothing income over a person's lifetime. In other words, people take a lower income while they are working and accrue an entitlement to replace their lost earnings when they are in older age. What if somebody reaches 65 and faces the choices offered by the Minister? The danger of not accepting an amendment of this sort is that the Government will have trouble selling the idea, and will not be able to persuade single people, who will realise that although they have contributed all their lives, they will risk never seeing a penny of the money if they go for the lump sum, whereas a married person will have the reassurance that the money will go to their spouse.
 I urge the Minister to reflect on that. He may find that not only will poor people not take up this option, single people will not do so either, and it will end up being a provision for the well-heeled, married rich. I do not suppose that that was his intention. 
 I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Question proposed, That this schedule be the Tenth schedule to the Bill.

Steve Webb: There are pages and pages of schedule 10, and I have only sought to amend two or three little bits. Will the Minister tell us what it is about, especially the parts that we have not discussed so far?

Malcolm Wicks: Just when I thought the hon. Gentleman was being reasonable!
 The schedule sets out the legislative framework providing for the choice between increments and the new lump sum for those who defer their retirement pension and shared additional pension. It sets out how the lump sum is to be calculated, and makes consequential changes to the existing provisions relating to the calculation of increments. It also 
 contains provisions enabling the surviving spouse of a person who dies while their pension is deferred to ''inherit'' either a lump sum or increments. It therefore provides the nuts and bolts of the new proposals. 
 I welcome the fact that the Opposition have given broad, though conditional and—I will be polite—occasionally slightly cynical support to these proposals on Second Reading and in Committee. The measure is about giving people more options as they approach retirement, and about improving the incentives on offer for people who want to extend their working lives. 
 An increased pension payable as a result of delaying claiming the state pension has been part of the state scheme for decades, but relatively few people take that option—we mentioned 3 per cent. Providing a much more generous rate of accrual by bringing forward the change in rate from 7.5 per cent. to 10.4 per cent. for each year of deferral will make it a more attractive option. However, by itself, the improved rate for increments will not be enough, so we are introducing the option of the new lump sum—a major policy innovation that we have discussed at length. 
 This is not about compulsion or about forcing people to work longer; any debate about the state pension age is yesterday's debate rather than today's. Giving people an additional choice requires them to weigh up their circumstances and take a decision, and we will ensure that the Department provides information that carefully explains the options and how they are treated for tax and other benefit purposes; we have discussed the implications, especially for pension credit, in detail. Some may call it ''increasing complexity''; we prefer to call it creating opportunities and choice for people. 
 I have outlined schedule 10—and as I anticipated that the hon. Gentleman would ask me to do so, I wrote the note myself last night. 
 Schedule 10 agreed to. 
 Clause 222 ordered to stand part of the Bill.

Clause 223 - Claims for certain benefits following

Chris Pond: I beg to move amendment No. 230, in
clause 223, page 148, line 33, at end insert— 
 '( ) This section also applies to claims for retirement pension or widow's benefit made before 1st March 2001 if the claimant only became entitled to the pension or benefit on or after that date.'.

James Cran: With this it will be convenient to discuss Government amendments Nos. 231 and 232.

Chris Pond: As this is the first time I have been called to speak under your guidance, Mr. Cran, may I say what a privilege it is to do so? We have had a wide-ranging and stimulating debate, and I will now take the Committee down under for a few moments.
 Clause 223, to which the amendments relate, is needed to regularise the extra statutory payments we 
 are making to people now living permanently in the UK who have had previous periods of residence in Australia. When Australia ended the social security agreement in March 2001, we had to take steps to protect the national insurance contribution records of the people affected. We did so initially by making extra-statutory payments, and this protection applies to those who are entitled to the payments of state pension, widow's benefits and bereavement benefits, and puts payments on a proper legislative footing. If we declined to legislate, extra-statutory payments would have to come to an end, thereby reducing the benefits of about 3,000 people. 
 Government amendment No. 230 will ensure that the clause applies to claims made on or before 28 February 2001, but where entitlement begins on or after 1 March 2001, giving any payments made under such claims proper legislative backing. It is not likely that there will be many such claims, but they may arise where, for instance, a claim for retirement pension is made in advance of the person's state pension age. We had thought that the agreement covered those cases, but I am advised that it does not. 
 Government amendments Nos. 231 and 232 are minor clarifications. Amendment No. 231 makes it clear that the apparently petulant reference to ''that agreement'' in subsection (2) is to the Australian agreement. Subsection (8) provides that this clause does not affect certain transitional provisions that followed the end of the agreement. Amendment No. 232 clarifies exactly what those provisions applied to, so as to dovetail with the revised scope of the clause.

Steve Webb: The Under-Secretary said that the Australian Government's decision to end the social security agreement with the United Kingdom underlay the group of amendments and the clause. For the benefit of Committee members who, like me, do not follow these things very closely, can the Minister tell us what went on? Why did a friendly Government break an agreement with us? Why are the clause and the amendments necessary? I sense that the answer is partly about politics, the British Government and Australian pensioners, and so forth. Will the Under-Secretary fill us in on all that?

Chris Pond: I will happily do so. The reason that the Australians gave was the refusal of successive Governments to uprate UK retirement pensions paid to recipients living in Australia. The Australian Government felt that that was a basis on which to withdraw from an agreement that had been operating for some time.

Nigel Waterson: What is the position of Australian citizens who come to live in this country? Are their pension payments frozen, or do they continue to rise as in the Australian legislation?

Chris Pond: My understanding is that the agreement was reciprocal. My assumption is that uprating was arranged for Australian citizens who were living in the UK. If I find on further inspiration that that assumption was incorrect, I will drop Committee members a line to inform them.

Nigel Waterson: It would be helpful to have that information before Thursday, because reciprocity and
 frozen pensions are relevant to the broad debate on one of the new clauses. For some reason I did not receive the last briefing note, so perhaps extra-special efforts will be made to ensure that I get this one.

Chris Pond: I can certainly give a commitment that they will.
 The clause is focused on trying to ensure that we protect the contribution record of people who have previously operated under an assumption—for much of the time it was a reality—that contributions would be credited to them when they were resident in Australia, to entitle them to the benefits that I have listed when they came to reside in the UK. Although there is an issue to do with reciprocity, it is not essential to this clause. 
 Amendment agreed to. 
 Amendments made: No. 231, in 
clause 223, page 148, line 35, leave out 'that agreement' and insert 
 'the reciprocal agreement with Australia'.
 No. 232, in 
clause 223, page 150, line 4, leave out 'had made a claim' and insert 
 'had claimed a benefit to which he was entitled'.—[Mr. Pond.]
 Clause 223, as amended, ordered to stand part of the Bill.

Clause 191 - Promoting and facilitating

Question proposed, That the clause stand part of the Bill.

George Osborne: Before we nod the clause through, I thought that I would ask the Government what they intend to do with it. The clause is entitled ''Promoting and facilitating financial planning for retirement''. The explanatory notes do not tell us much more than the clause, which, sadly, is often the case with explanatory notes. However, the very good Library briefing states that it is about establishing a web-based retirement planning facility. Will the Minister say what exactly is envisaged and how the web-based planner will work? Presumably, the problem that the Government seek to address—or address in part—is the huge savings gap, estimated by the Association of British Insurers to be £27 billion.
 The Government's solution seems to be to say, ''Obviously, people do not know enough about their pensions and they are not making enough provision''. There is not a hint of the idea that that could be because of something that the Government have been doing—for example, through the pensions tax, which they introduced soon after coming to office. 
 However, let us put that debate to one side and focus on the clause. How will the web-based planner work? Will it have information on everyone's pension—everyone's state entitlement, but also any private pension entitlement that they have? Will all such information be held online? Will I, as a citizen, be 
 able to log on, enter my name and address and have that information pop up in front of me? If not, will I be required to log on and will the Government have to get the information and come back to me by sending an e-mail? 
 How will the Government be sure that they send the information to the right person, and that my worst enemy is not logging on—[Hon. Members: ''Who is that?'']—that my Liberal Democrat opponent in my constituency is not logging on, wanting to find out information about the MPs' pension scheme and other things that I might be entitled to? How will the security work, and not just in the obvious sense of how the Government would know that the right person was logging on? Is the Minister satisfied that this system, which will contain detailed information on a large number of our citizens, is secure and cannot be easily hacked into? One reads in the papers that the US Defence Department computer is regularly hacked into. Presumably it has secure firewalls. Has the Department for Work and Pensions given that any thought? 
 What will be the cost of providing the planner? About a year ago, perhaps longer, I was at a Public Accounts Committee hearing with the e-envoy, and it turned out that the Government had spent more than £1 billion on websites. The Government are pretty free with their money on web-based things. It would be interesting to know how much it will cost to set up, keep running and update the web-based planner. I suspect that it is a complicated piece of software. Also, how many people will use it? We are going to spend all this money and legislate to create this wonderful device; have the Government made any estimates of how many people will use it? 
 Before the hon. Member for Northavon gets there, I want to ask about people who are not so well off, may not be so computer literate and may not have access to the internet. How will they access many of the facilities that the web-based planner provides, but which they do not have the means of logging on to? It may be the case—I am making a guess here; perhaps the Minister will confirm this—that those least informed about their future are also least likely to log on to a website to find out about it. People on top of their pension provision who constantly check the financial pages of the newspapers will use the device. Those with very little idea of what they are entitled to may not be aware that the service exists. 
 What are the rules on the accuracy of the information provided? Presumably there will be some disclaimer that states, ''By the way, we are not remotely responsible if we give you all sorts of duff advice''. However, people will obviously make important life decisions on the basis of the information that the Government will provide them with on the web-based planner. How will the Under-Secretary ensure that the information is accurate and that people are aware of the many variables that can quickly change their likely pension entitlement? I am referring to movements in the stock market and in interest rates, and changes to pensions law and tax law—the type of measures that are introduced in Budgets such as the one that will be announced 
 tomorrow. How will the Under-Secretary ensure that people do not log on, obtain some information and say, ''Fine; I can sit back and not bother to do anything about my provision,'' even though in future significant changes may occur in the financial markets or in the legislative and tax framework for pensions? Such changes may alter people's pension provision, yet they may be unaware of that. 
 If, for example, the Chancellor announced a Budget in which he made changes to pensions taxation, would the web-based system e-mail everyone who had previously contacted it and say that they should be aware that the Government have announced significant changes, which either improve or reduce their pension entitlement? As the Government are taking upon themselves the option of providing people with information, how will they ensure that people are informed of changes, many of which will be within the Government's hands?

Steve Webb: I would broadly echo, and therefore will not repeat, what the hon. Gentleman has said. He has raised a number of important issues. I am heartened to hear him being the voice of the poor and the marginalised, and I hope that we can carry on goading him into that.
 Under clause 191, the potential of websites where all the information for an individual is gathered together and they can consider hypothetical questions—such as what the gap is if they want a particular standard of living and what they might do about it—is, in principle, tremendous. The practice, however, worries me a great deal. There is a vicious rumour that when the Secretary of State tried to demonstrate the website to assembled journalists, it broke. I do not know whether that is true and the Under-Secretary can confirm it.

Nigel Waterson: ''Crashed'' is the word, I think.

Steve Webb: That is the technical term no doubt.
 There are serious issues, because people might have had multiple employers in the public and private sector and might have spent periods in the basic state pension scheme and various second-tier state pension schemes. They might have their own stakeholder pensions and so on. I am sceptical that it will be possible to obtain a reliable picture from a device such as the one that we are discussing, unless the individual brings with them a great deal of the necessary information—and the sort of person who has all the information and complete documentation and knows where they stand is probably the last person who needs such a device. My worry is that the Government talk a good game on combined pension forecasts, which we shall discuss later, but delivery has been almost non-existent and it has taken years just to inch forward.

Nigel Waterson: Can the hon. Gentleman see a parallel with the 20-minute standard period set aside for a telephone conversation about pension credit, which is just one narrow aspect of pension provision? If elderly people are meant to spend 20 minutes on that alone, how long are people meant to spend on a website doing the information gathering and exercises involving the passing on of information that the hon. Gentleman describes?

Steve Webb: That is a good point. The mention of means-tested benefits is crucial to the discussion of the clause and to the information that the website will provide. Let us consider someone who, at the age of 40, has accrued rights in a state scheme, has state second-tier provision and a bit of private provision, and has had a couple of different employers and so on. They will already be trying to bring together many different types of information. Let us say that I have a stakeholder pension. Will the website be able to predict for me, at the age of 40, what pension I will receive from an accrued stakeholder pension 25 years down the track? It simply could not do so. It could perhaps do so only when I was a year or two away from retirement, but at that point it is too late to do anything. There is a paradox with pensions: the further away someone is from retirement, the more uncertain the situation is, but it is only when someone is far away from retirement that they are realistically able to make a big change to what they will receive when they retire.
 It is not clear—I hope that the Under-Secretary will enlighten us—how far the website will be able to make predictions. Will it make predictions, for example, on a range of assumptions? Certainly when someone is sold a pension, they are given a range of assumptions. Let us say that I go along to the website and say that I have a stakeholder pension. The first question is: will the website know how much I have in that pension? Will Big Brother know? If the website does not know and I tell it how much I already have, will it give me an estimated pension based on a projection of not only rates of return, but presumably life expectancy? If I act on the strength of the information on the website and everything goes horribly wrong because it was duff information, will the Government just say, ''That's your tough luck''? The clause raises a raft of issues, even though it sounds innocuous: who could be against information?

Malcolm Wicks: The Liberal Democrats.

Steve Webb: Yes, if the information is incomplete, inaccurate or speculative.
 To draw an illuminating analogy, let us consider endowments. Millions of people were told by salespeople that endowments were a good deal, but did not understand them that well. The projections that were made turned out to be wildly inaccurate, and many may now be trying to get compensation.

George Osborne: The hon. Gentleman is expanding on the points that I made. Does he agree that with final salary schemes, one of the great unknowns is what the final salary will be? People will be asked to enter their expected final salary into the web-based system, but what would an MP put in? I suppose it depends whether they have a marginal seat or not.

Steve Webb: We are back to the marginal again.

Kevin Brennan: The point about endowment policies was valid, but does the hon. Gentleman not accept that the difference is that people were using exaggerated projections, encouraged by the fetish for laissez-faire in the Government of the time, to sell people an endowment policy? In this case, the Government are trying to provide people with
 parameters within which they can judge whether they are providing adequately for their retirement.

Steve Webb: That is an interesting point. However, every financial adviser will presumably have the Government's web-based system on their screen and will tell people, ''Look, the Government say that you need to save more.'' Where will that leave us? There is a can of worms behind this apparently innocuous clause, and I look forward to the Minister putting a lid on it.

Chris Pond: It strikes me that the world in which the hon. Member for Northavon lives is so crowded with complexities that it is almost impossible for him to move. My hon. Friend the Minister for Pensions shared with me the observation that it was a wonder that the hon. Gentleman's Liberal predecessor, Lloyd George, ever got round to boiling a kettle, let alone introducing a national pension scheme. We assume that he boiled a kettle, although he may have been concerned about whether he had the right voltage in the electricity or the right amount of oxygen in the gas.
 As the hon. Member for Tatton (Mr. Osborne) said, there is a savings gap. As the Committee knows, it affects 3 million of our citizens who are estimated to be seriously under-saving for their retirement, and 5 million to 10 million people who should make further provision to meet their expectations of their standard of living in retirement. The clause is part of the Government's attempt to ensure that we can provide assistance to those people in their financial planning, and I will come to specific concerns raised by the hon. Members for Northavon and for Tatton. 
 The clause is about encouraging people to plan proactively for retirement and supporting them in doing so. It is about the online retirement planner, which we outlined in the Green Paper and confirmed in ''Simplicity, Security and Choice: Working and saving for retirement—Action on occupational pensions'' in June. The hon. Member for Northavon was concerned that the planner might not work. I extend to him and other members of the Committee an offer to have a go on it. We would be happy to give them a run-through on the demonstrator, so that they can see how the planner might work. Some of them might get a bit of a shock to see the provision that they are making for the future. 
 At the moment, the onus is on the individual to seek out information, bring it together in a meaningful way and understand it. With the new power for the Secretary of State, and the Department for Social Development in Northern Ireland, to assist people in financial planning, we can encourage people to look at their projected total retirement income in the round, and to consider taking steps to reduce any undesired savings gap. 
 The clause gives examples of the types of activity that might be involved in such planning. They include helping people calculate what resources they might need in retirement, helping them estimate the total pension income that they are likely to receive, and 
 helping them to think about what they might do to close any possible gap. The web-based retirement planner will enable people to view their total composite projected pension income, including occupational and personal pensions. It will enable people to estimate the income that they think they might need in retirement, calculate the savings shortfall, and review the options for addressing that shortfall. 
 The planner will use current information about individuals to forecast their future income in retirement. We have to, and will, make it clear that circumstances will change for individuals over time; the planner will not be a snapshot set in tablets of stone for ever. People will have to continue to refer to the information that is available and the mechanism of the planner to ensure that they are doing what is necessary to provide the sort of standard of living that they want for themselves and their family in retirement. 
 However, the planner is not about the Government providing financial advice. We will make it very clear that we are not selling financial products; I know that that will worry the hon. Member for Northavon. We are there to facilitate the bringing together of the information that people need to make judgments for themselves. During the short break for the Division, I heard that the directors of Heinz, the food corporation, have been listening to our proceedings, and are considering whether it is wise to continue to offer a full 57 varieties of their products, or whether they should be telling people which varieties they should be buying and eating. The purpose of the planner is to give people the information that they need, and to allow them to make informed choices on that basis. 
 The hon. Member for Tatton rightly asked about the security of the system. Of course, that issue is a challenge that faces all those who provide information online, whether that be for online banking or online shopping. I reassure him that the usual security checks will be in place. The system will use the Government gateway to secure access, and will involve using a unique identifier, so it will be as secure as we can possibly make it. 
 The hon. Gentleman also asked about the information that would be available on the planner. As I have suggested, people will be able to access pension information on both state and private pension rights online. There will be the usual security checks.

George Osborne: Where would the Government get information on private pensions from? Will they have information on every citizen's private pension provision, so that anyone can log in at any time and get that information? Or do people have to provide that information first, and feed it into the web planner? How exactly will it work?

Chris Pond: In our debates on other clauses this afternoon we will talk about the exchange of information between the Government and various bodies, including third-party pension agents, as well as those running company pension schemes and stakeholder pension schemes. The purpose is to
 make sure that we bring together all the information we can from those different sources.
 On disclosure of information, we need to ensure that legal gateways are in place to enable us not only to obtain that information and to allow people to give it to us, but to establish that we can use it for this purpose when some of the information has been given to us for other purposes. 
 The hon. Member for Tatton asked about cost. Funding for the ongoing development of the programme will be considered as part of the spending review 2004 process, which will conclude this summer. At the moment, indicative costs for establishing and running the web-based retirement planning service are likely to be less than £10 million as a one-off investment and less than £5 million in annual running costs.

Steve Webb: If I had been asked to guess those figures, I would have added two extra zeros to each of them—perhaps that shows that since I was elected, I have lost the ability to count. However, the Department is notoriously appalling with regard to computers and information. It does not know where people live. Its new computer systems cost hundreds of millions of pounds, but every time there is a new one there is a new shambles. This system will bring together in one place everyone in the country and all their pensions. How can that possibly be done for £5 million a year, which is less than 10p per citizen? I cannot believe those figures.

Chris Pond: I agree that it is remarkably good value if we think we can do everything for that cost.

Nigel Waterson: Not if it does not work.

Chris Pond: I am advised that that is the working cost assumption that we have for running such a website. As for the exchange of information, I must emphasise that we are not going out to buy the information. Much of it is already available. The Committee is giving the Government the power to use for this purpose much of the information that they already have.

Nigel Waterson: Is this not a triumph of hope over experience? The Under-Secretary will remember that the Secretary of State gave frank evidence to a Sub-Committee of a Select Committee of which I am a member about the dreadful saga of the Child Support Agency and its computer systems. It had massive problems with migrating old cases on to the new system—in fact, there were massive problems in getting the new system to work, let alone in migrating old cases. I should add that the dreaded EDS was involved, which I think has 40 per cent. of all Government IT contracts. The Secretary of State made the frank admission that it was still an option for the Department to scrap the whole thing and start again. Where does the Under-Secretary get his eternal optimism from?

Chris Pond: Not from the experience of the CSA migration of cases from the old to the new system—but we must get this in perspective. It is a massive task to establish a new child support system; millions of cases were involved, many of them migrating from one
 system to another and many of them linked, and there were two systems that unfortunately did not automatically speak to each other. I am looking at you, Mr. Cran, to see whether I am taking us too far away from the subject under discussion.
 In this case, we are talking about a much more modest venture, which is simply to make sure that we have an interactive website that brings together the available information. Making calculations of people's entitlement to child support is much larger than the activity that will be undertaken in this case. If hon. Members would like further information on costs, I shall be happy to provide it. 
 The hon. Members for Tatton and for Northavon asked whether the facility will be accessible to the people who need the advice the most. Use of the internet has increased dramatically in a very short period. Between 1998 and March 2003, the proportion of UK households with internet access increased from 10 to 47 per cent. Almost 95 per cent. of businesses are on line. People will have access to the service not only in their own homes, but through public libraries, their workplaces and voluntary organisations such as Citizens Advice. We therefore expect the service to be available to a large number of people. 
 We are not pretending that the service will be the solution to the savings gap experienced by the 3 million people who are seriously under-saving, but it is a valuable additional instrument that we can make available to people, which brings together their different sources of pensions income predicted for the future in such a way as will allow them to make informed choices. The choice will be theirs; we cannot make it for them. We cannot tell them which of the options is the most sensible, but giving people information and access to this sort of interactive technology will assist them in making the right choices on their own behalf.

Steve Webb: I had not intended to reply, but I am staggered by what the Minister has just said. I cannot believe that we should now authorise the spending of public money on that. I take the fact that the clause is printed in italics to mean that it relates to privilege, and therefore to the spending of money.
 There are two possibilities. One is that the website will be simple—that a person will be able to fill in their information and ask, ''What if?'' and the website will then do the some sums for them. I can believe that that might cost £5 million. However, that is not how it is being sold to us. We are being told that the Government are going to assemble everybody's information about everything, which is, of course, always changing. This will not be a one-off exercise. For example, if I became a widower, all my entitlements would have to be calculated under all sorts of different rules, and that information would have to be assembled. That could cost a fortune, and this could be another departmental computer shambles. The Minister has said that there are problems when computers do not talk to each other, but for goodness' sake, everybody's pension information is all over the place on all sorts of computers. Getting that into common formats will be a mammoth task. We cannot allow the clause to stand 
 part of the Bill, because we are being asked to sign a blank cheque, and it would be irresponsible to agree to it. 
 Question put, That the clause stand part of the Bill:—
The Committee divided: Ayes 13, Noes 3.

Question accordingly agreed to. 
 Clause 191 ordered to stand part of the Bill. 
 Clauses 192 and 193 ordered to stand part of the Bill. 
 Schedule 9 agreed to.

Clause 194 - Combined pension forecasts

Question proposed, That the clause stand part of the Bill.

George Osborne: Before we accept the clause, we want to know the Government's intentions. As I understand it, they are taking reserved powers upon themselves, which may mean that private pension providers and occupational pension providers are forced to provide a combined pension forecast. Of course, many occupational schemes already offer that service. Judging by the figures in the House of Commons Library brief, the Government expect that up to 600 employers and providers will provide 6.3 million combined pension forecasts in the next few years. That is obviously a good thing, although there are caveats about the quality of the information and the ability to forecast pensions many years ahead.
 The Government seem to be threatening to take a fairly successful voluntary approach and turn it into a compulsory one. I am sure that the Minister will tell me that they are not about to do that and that they want to make the voluntary system work. However, the clause gives them the power—by regulation, and, perhaps, after just one and a half hours in a Committee on statutory instruments—to force all occupational pension schemes to provide those combined forecasts. 
 Not all occupational pension schemes are large and have lots of resources and professional advisers. Many of them are small. Therefore, what is the likely impact of the measure? Is there a regulatory impact assessment about the cost to occupational pension schemes of making it compulsory for them to provide combined pension forecasts? What will be the impact on smaller schemes, in which the costs are likely to be 
 disproportionate and for which the schemes might not currently provide such information? What is the industry's view on making that information compulsory? Again, I am not just referring to the large pension schemes and providers, which no doubt would be happy to provide the information. What about the small schemes, some of which have only two or three members? How would they cope with the burden? 
 It is important that we ask those questions, not because that scenario is about to happen, but because, if we accept the clause, it could happen. Before the Government take those powers upon themselves, it is important that the Minister and the Government at least understand what the possible impact might be. In addition, what will be—or what is—the liability for the accuracy of those forecasts? If a scheme provides forecasts and they turn out to be inaccurate—perhaps because it made a mistake when providing them, not only because the forecast changed but because the scheme made a mistake in compiling it—is someone able to take the scheme to court over that? What would be the cost of that? 
 Those are important questions because the backdrop to the Bill has been the decline in occupational pension schemes and, as it has been perceived, and as I would agree, the additional burdens that have been placed on them. Is this measure in danger of being yet another burden? Could it be yet another reason why a company might not wish to provide its employees with an occupational pension, or why it decides to close such a scheme?

Malcolm Wicks: The clause will enable the Secretary of State to require trustees or managers of an occupational or personal pension scheme to provide scheme members with combined pension forecasts. That means a single notification setting out their forecast entitlement to both state pensions and occupational or personal scheme benefits. A combined pension forecast helps people to make an informed choice and it is another weapon in the armoury in the battle for pensions literacy in Britain. It allows them to take action in good time and to plan and provide for the retirement income that they want. Working in partnership with employers and pension providers—I give the assurance that we are working in such a partnership and that we are listening and learning—the Department recently issued its one millionth forecast. By the end of this financial year, we will have issued them to more than 1.3 million people.
 We have achieved the forecasts through voluntary co-operation with our partners and it is our preferred way in which to move forward. However, given the importance of the tool in empowering people to make informed choices, if necessary we shall make the provision of combined pension forecasts a statutory requirement for schemes. The clause gives the Secretary of State a power to do that if the momentum of the voluntary approach slows down. We hope that employers and schemes will continue to sign up to our voluntary partnership, but it is prudent—if I can use that word on the Tuesday before the Budget—to put a contingency in place. 
 Part of the backdrop is the proper dialogue that is taking place in the pensions debate about a voluntary as opposed to a compulsory route. Some people advance the reasonable argument that there should be compulsion in respect of employers' contributions to pensions. We are resisting those arguments. We have set up the Pensions Commission to monitor and advise on matters. We want to make something of the voluntary approach. I listened with great care to the hon. Member for Tatton. If we cannot demonstrate success with the voluntary approach, those who argued for compulsion will debate the issue more eagerly. I am committed to trying to make voluntarism work, which small businesses need to understand. 
 The burden-on-business argument can be greatly exaggerated. Let us bear in mind that defined contribution schemes are already required to provide—perfectly properly—statutory money purchase illustrations annually to members of defined contribution schemes. In a sense, the documentation exists and, at present, trustees of defined benefit schemes must provide annual statements containing certain benefit information to an active or deferred member who requests such a statement. Much of the documentation is there. Indeed, it would be startling if it were not. Any regulation will be subject to a full regulatory impact assessment. Before introducing regulations, we shall consult all interested parties and further regulations will follow the affirmative procedure and will therefore be subject to more parliamentary scrutiny.

George Osborne: Can the Minister give us a sense of what he would regard as the success of a voluntary approach? Is he looking for a large majority of occupational schemes to provide such information? If he were thinking about only half of schemes or 60 per cent. of them, would the Government then move to compulsion? Under a voluntary approach, obviously not all schemes will take such action. I do not expect the Minister to give me an exact figure, but what rate of success does he have in mind?

Malcolm Wicks: The success of the voluntary approach would be measured in different ways and would not relate to only one measure. We have heard about other measures, but success is whether we can show that more people in Britain are making ''informed choices about pensions''—our phrase—and that more people have a real opportunity to be members of decent occupational pension schemes. Those are the criteria. Within that, we want to assess the impact of different mechanisms, including the one that we are discussing. However, we certainly hope that the scheme would be adopted not only by larger companies, which are easier to convince of its virtues, but by many medium-sized and smaller companies.

Nigel Waterson: On what evidence does the Minister base his assertion that people have more choice in this country to join occupational pension schemes? All evidence shows that, certainly in final salary schemes, the number of schemes that are open to new members is declining rapidly. According to the National Association of Pension Funds, someone who now joins a company will have less than a one in five chance
 of finding an open scheme. On what basis does the hon. Gentleman suggest that the choice is increasing?

Malcolm Wicks: We could discuss that, but how do we assess the voluntary approach? I said that, on the one hand, the question is whether we can demonstrate that people are making more informed choices and that pension literacy is rising. I went on to say that another measure would be whether more people in work have the opportunity to join decent occupational pension schemes. We are committed to the voluntary approach and we have to prove that it works, otherwise tougher options might be debated.
 Question put and agreed to. 
 Clause 194 ordered to stand part of the Bill.

Clause 195 - Information and advice to employees

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: The arguments in respect of this clause are similar to those for clause 194 in that they relate to burdens on business, reserve powers and so on. The clause requires employers to act to enable employees to have access to information and advice about pensions and saving for retirement. According to the regulatory impact assessment, the provision is targeted at employers with low or no contributions and low membership rates—indeed, the very group of employers who are required to designate a stakeholder pension scheme. There are at least 350,000 employers who employ five people or more, but who do not provide access to an occupational pension scheme or do not contribute at least 3 per cent. of an employee's salary to a group pension arrangement. The document reminds us that about 82 per cent. of employer-designated stakeholder schemes have no members.
 Will the Minister confirm that the Government are proposing to pilot a range of different options, from a straightforward pensions information pack that gives information to employers on pensions—the approach being, presumably, ''Here's a leaflet about it,''—to the Rolls-Royce option of a pensions information pack, a presentation to employees, and a one-to-one interview with an independent financial adviser who will give limited pensions-focused advice? 
 It is useful that there will be pilot schemes on the different options because one feature of the four options is ascending cost. What time scale does the Minister envisage for the pilot schemes? There is talk of them starting any time now, if they have not started already. How long are they likely to last and how long does he anticipate that the assessment of the results will take? 
 The Minister will be aware that there have been criticisms, not least from the CBI, that the proposals are over-complex, too intrusive and costly. The CBI is concerned about employers who do not contribute to pensions having to provide pensions advice and information to their employees. It accepts that employers who do not contribute should provide pensions information, but it draws the line at them providing advice. It says that many small employers 
 would find providing annual interviews or presentations hugely expensive and that 
''facilitating advice by stakeholder providers could have legal and/or employee relation repercussions in the future if, for example, the pension underperforms.'' 
 I am sure the Minister is aware of the genuine concerns of responsible employers who are members of the CBI. I hope he will confirm that the powers will remain reserve powers for the foreseeable future, but what will be the criteria for using the powers instead of merely having them in reserve?

Steve Webb: Having spoken for the downtrodden masses, I, too, want to defend the CBI, although I promise not to make a habit of it. It raised a specific aspect of the clause with me. The world will never know that we tabled amendments to clause 195 because, as we reached it rather sooner than we anticipated, they will never be seen.
 At various points the clause refers to ''information and advice''. That is the key thing. The hon. Gentleman touched on the issue, but I want to tease it out a little further. The clause is entitled ''Information and advice to employees''. As I said, and as the hon. Member for Havant (Mr. Willetts) has pointed out, employers are very nervous about anything that smacks of advice, to the extent that they may not even encourage their employees to join their own perfectly good employer scheme, which employees may have been well advised to join. In some cases, employers are almost frightened to say anything lest they be accused of giving people poor advice or being in breach of financial services regulations because they are not authorised to give that sort of advice. 
 What is not clear is what safeguards there will be for employers who comply with the law who do not just provide information and invite someone in for a chat, but who provide the premises and possibly pay for someone to come in and provide financial advice to their employees. Will employers face not merely the cost burden of providing the advice, which is possibly a legitimate thing to expect, but a potential comeback in relation to advice that they paid for and facilitated, in the sense that they provided a space in which it could be given? 
 The advice could relate to employer-related provision. That would be another aspect of the issue. We are not just talking about someone coming in and advising employees about stakeholder pensions or something that has nothing to do with the employer. We could also be talking about contributing to employer-sponsored provision or employer provision. Will there be any comeback on employers? That is the key question. Can the Minister put on the record his 
 assurances that employers who conform with the clause will not find themselves being sued for giving or facilitating advice that they were not entitled to provide?

Malcolm Wicks: We have had a useful discussion. We know what the clause is about. It provides a power to require employers to provide their workers with access to information and advice about pensions and savings for retirement. Many employers, of course, are committed to supporting their employees in providing for their retirement. Many ensure that employees have access to a good pension scheme and good information about the benefits of being a member of that scheme. Other employers, sadly, are more reluctant in that regard. Although this is a time to scrutinise our proposals, I look forward to other occasions when Opposition Members might want to be positive about what they propose.
 The power that we are seeking will require those employers who are contributing little or nothing towards their employees' pensions to ensure that those employees at least have access to a decent standard of pension information. We seek that power on a reserve basis. Before we decide whether to make regulations, we want to gather evidence on which method of delivering pension information and advice through the workplace is most effective. Our aim is to make people seriously consider the provisions that they are making for their retirement and what might make a real difference to savings levels. 
 A pilot study will consider the issues and the results will be published. The study will commence this summer and the results will be published in summer 2005. We also need to consider other developments, such as the review of the Financial Services and Markets Act 2000, which governs what employers can and cannot say to their employees about pensions. Such changes mean that the reserve power needs to be broadly drawn. That means that if we decide to exercise it, Parliament will need a further opportunity to scrutinise our plans in full. Therefore any regulations made under the power will follow the affirmative procedure. 
 I hope that I have said enough to satisfy the hon. Member for Eastbourne about our good intentions. The hon. Member for Northavon asked whether employers will be liable for misleading advice delivered through the workplace to their employees. The answer is no. 
 Question put and agreed to. 
 Clause 195 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Margaret Moran.] 
 Adjourned accordingly at twenty minutes past Five o'clock till Thursday 18 March at half-past Nine o'clock.